European Stocks Post Weekly Drop Amid Fed Stimulus Signs

European stocks posted their first
weekly loss in more than a month as investors debated when the
Federal Reserve will scale back momentary stimulus and Chinese
manufacturing unexpectedly shrank.

FirstGroup Plc tumbled 43 percent after the U.K. bus and
rail company halted its dividend and announced a rights offer to
avert a credit downgrade. SAP AG, the largest maker of
enterprise-management software, dropped the most in 21 months
after changing its board structure. Bankia SA (BKIA), the nationalized
Spanish bank, sank 85 percent before a debt swap next week.

The Stoxx Europe 600 Index fell 1.7 percent to 303.35 this
week past, including the worst drop in 10 months on May 23 after
Fed Chairman Ben S. Bernanke said the central bank will consider
paring its stimulus measures if the U.S. economy improves. The
gauge had climbed to the highest level since June 2008 before
the selloff, bolstered by monetary policy and better-than-estimated U.S. economic data.

“Bernanke’s words had people start to worry,” Alberto Espelosin, who helps oversee $1.5 billion at Abante Asesores
Gestion in Madrid, said in a phone interview. “We all know that
the Fed will at one point have to reduce the level of purchases.
It was a logical market reaction this week, given that indices
were at record highs.”

The Standard & Poor’s 500 Index (SPX) fell 0.8 percent on May 22
as Bernanke said in testimony to Congress that the pace of asset
purchases could be cut “in the next few meetings” if the
economy improves. That was a departure from previous statements
where he stressed that policy will remain “highly
accommodative,” Kevin Logan, chief U.S. economist at HSBC
Holdings Plc, wrote in a report to investors this week.

Japanese Losses

In Asia, Japan’s Nikkei-225 Stock Average (NKY) on May 23 posted
the steepest retreat since the aftermath of the March 2011
tsunami and nuclear disaster as yields on the nation’s bonds
rose. The index had surged 50 percent in 2013 before the drop,
the best performance among 24 developed-market benchmarks
tracked by Bloomberg, as the Bank of Japan stepped up the
purchases of bonds to end deflation.

China’s manufacturing is contracting in May for the first
time in seven months, a release showed. The preliminary reading
of a purchasing managers’ index declined to 49.6 this month from
50.4 in April, HSBC and Markit Economics said. That missed the
50.4 median estimate in a Bloomberg survey. Fifty is the
dividing line between expansion and contraction.

Even so, European economic data showed some improvement. A
gauge of euro-area services and factory output increased more
than economists forecast in May, adding to signs the region is
starting to emerge from its record-long recession. German
business confidence climbed for the first time in three months.

DAX Drops

Fifteen of the 18 western European benchmarks declined this
week. Germany’s DAX Index (DAX) and the CAC 40 in France retreated 1.1
percent. The U.K.’s FTSE 100 Index lost 1 percent.

“We don’t think that it is anything else than a
correction,” said Cyril Castelli, chief executive officer at
Rcube SAS, a research and market strategy firm in Paris. “You
have attractive valuations and a much better liquidity
environment. There is potentially a large run-up in euro-zone
equities and we would use the ongoing correction as a buying
opportunity.”

The Stoxx 600 reached a valuation of 13.6 times estimated
earnings on May 22, according to data compiled by Bloomberg, the
highest since January 2010. Still, the weighted-average dividend
in the Stoxx 600 as a percentage of share prices tops the yield
on benchmark German bunds by more than 2 percentage points,
Bloomberg data show.

FirstGroup, SAP

FirstGroup (FGP) plummeted 43 percent this week, the biggest drop
since at least 1995. The company stripped of Britain’s premier
U.K. rail route in 2012 had the largest one-day retreat in 18
years on May 20 after halting its dividend to focus on a 615
million-pound ($930 million) rights offer.

SAP declined 6.5 percent, the most since August 2011. The
company changed its management structure as it focuses on the
faster-growing parts of its business. The company said its
cloud-computing chief and founder of SuccessFactors Inc., a
software provider it bought last year, is leaving the company as
part of the changes.

Bankia, the Valencia-based banking group that was bailed
out with European aid last year, tumbled 85 percent. The lender
will execute a debt swap on Tuesday that will practically wipe
out existing stockholders plus a parallel rights offer that will
raise 15.5 billion euros ($20 billion).

The Spanish regulator, CNMV, said it will investigate
trading activity after 49.39 million Bankia shares changed hands
on May 23, more than double its share capital of 19.93 million
shares, as the stock plunged 51 percent.

Britvic, Metro

Britvic Plc, the U.K. maker of Robinsons Barley Water, rose
the most in more than eight months on May 22 after saying it
will shut factories and reduce staff after abandoning a merger
with A.G. Barr Plc. Britvic shares gained 11 percent this week,
while Barr slipped 0.2 percent.

Metro AG surged 8.3 percent, the most in six months, after
Morgan Stanley recommended buying the stock for the first time
in a decade. The brokerage cited the prospect of further
disposals as Germany’s biggest retailer reorganizes.

Morgan Stanley increased its recommendation on Metro to
overweight, equivalent to a buy rating, from equal weight and
said the shares may climb to 33 euros apiece.